Three Key Issues Facing The Beef Industry

As the industry enters the second half of 2011, it’s of value to reflect on the key issues facing the industry. Beef demand remains the top issue because all wealth to the industry comes from consumers, at home or abroad. How much consumers spend on beef not only determines whether packers make money or not, but also what packers can pay for live cattle and the price of feeder cattle and calves.

The next two top issues are access for U.S. beef in international markets and federal regulations. Trade restrictions force the U.S. to leave $1 billion on the table each year due to missed export sales. And as for the red tape, just think EPA and CAFO regulations (that’s the Environmental Protection Agency and concentrated animal feeding operations). Think EPA and its absurd proposals on dust. Think USDA’s proposed GIPSA rule that would change the way cattle and other livestock would be marketed.

The live-cattle market the first week of June stabilized after its rapid retreat from its record highs in early April. The price retreat was 15% from those highs, which is the normal decline from winter/spring highs to summer/fall lows. Wholesale beef prices also fell from their highs but only by 7.5%. But any rally in either cattle or beef prices in June appears short-lived.

Many retailers have taken advantage of boxed-beef prices that were $13/cwt. lower than their spring highs. Thus, retailers are likely to feature beef a bit more in July, just when beef sales tend to falter due to the “dog days” of summer. Let’s hope they price steaks more aggressively than they did in May and June. Middle-meat retail sales over the Memorial Day weekend were sluggish while ground beef sales boomed.

The latest economic news has been rather bleak. None of it is good for beef, which is more expensive in the grocery store than this time last year. The All Beef retail price in April was $4.45/lb., 10.4% higher than in April last year. The average price of pork was $3.38/lb., 15.8% higher, while chicken at $1.74 was 5.5% higher.

This shows how much more expensive beef is to pork, and how both meats can’t compete on price with chicken. I have heard of grocery stores offering 10-lb. bags of frozen boneless, skinless chicken breasts for 99¢/lb. With many American families struggling to keep afloat financially, they have few options if they want to eat protein regularly.

Two issues still worry Americans. Many still can’t find jobs because not enough are being created. And, many are struggling to maintain equity in their homes, as house prices have sunk to 2002 levels. Unless the job and housing markets improve dramatically, it could be an even tougher summer for the meat markets than last year.

Industry leaders rightly have focused on market access as a top issue. Getting Japan to lift its age limit on U.S. beef and gaining access to China top the list of “to dos.” Getting Congress to pass three pending, free-trade agreements ranks up there as well.

It’s been 7½ years since Japan banned U.S. beef due to our first BSE case. The importance of getting Japan to lift its age limit, which currently requires beef to come from cattle under 21 months of age at slaughter, can’t be overstated.

Japan was by far the largest export market for U.S. beef in 2003, when it took 375,993 metric tons (mt) of beef and beef variety meats, worth $1.394 billion. Exports to Japan last year totaled 124,561 mt, worth $639.5M. Sales this year have been strong despite Japan’s disasters and it remains a key market. In fact, the U.S. Meat Export Federation forecasts that volumes this year will total 140,000 mt.